When taxes hit a little too close to home

AdanVillafranca never thought about buying a home.

Not until he got engaged, that is. Born and raised near Chicago to parents who immigrated to the United States fromMexico in the 1960s, he began looking for suitable soil to plant roots and start a family of his own. Adan’s house hunt started in the city’s southwest suburbs: Oak Lawn, Oak Forest, Crestwood, Tinley Park and the like.

But then he sawthe property tax bills. Therewas noway his budding family could afford to pay $6,000 to $8,000 each year, on top of their mortgage, for the kind of home theywanted.

One ofAdan’s coworkers jokingly suggested he look for a home in Indiana. The joke landed.

Adan, his wifeCynthia and their two children nowcall Highland, Indiana, home.

“Property taxes here are $1,000 to $2,000. Iwas like ‘wow, this is a big difference’ [compared] to Illinois,” Adan said. “That’s a big deal when you’re starting a family.”

And itwasn’t just that bill— it was the bang for theVillafrancas’ buck. Adan’s commute towork in Tinley Park actually got shorter. His children will be enrolled in blue-ribbon public schools. And he has extra money to pay for gymnastics and swimming lessons for his eldest daughter.

Adan’s story is not atypical. He knew what his family could afford and the amenities theywanted, so what ultimatelymoved the needle was not the price of the home, per se, but what could more accurately be described as “the cost of homeownership.” The total cost of homeownership is more than just amortgage payment. It also includes tax deductibility, maintenance costs, the opportunity cost of investing in a home versus something else— and of course, the tax bill.

If the cost of homeownership goes downover time, the likelihood that your homewas a good investment goes up.

Anew report fromthe Illinois Policy Institute showswhy this concept is so important in explainingwhy the state has struggled to attract residents like theVillafrancas. The research compiles the cost of homeownership across all 50 states, comparing the prehousing bubble period (2002-2004) to the post-recession period (20132015).

The good news? Americans in 47 states sawa decline in the cost of homeownership over that time, meaning buyers likely made good bets if theymoved in before the housing bubble. This declinewas driven mostly by record-lowinterest rates.

The bad news? Illinois joined Michigan and New Jersey as the only three states where the cost of home ownership went up, which means owning a home is aworse deal nowthan itwas prior to the housing bubble.

Here’swhy: In Illinois, the benefits of lower borrowing costs were completely canceled out by tax hikes.

First, the median Illinois household sawa 38 percent hike in its effective property tax rate between the 2002-2004 and 20132015 periods. That’s close to five times the increase in the rest of the nation.

Many Illinois politicians hitting the campaign trail parrot a catchall solution to those rising property tax bills chasing families like the Villafrancas out of state: hike income taxes.

But while the rest of theU.S. sawincome tax rates fall, Illinoisans sawexactly what those politicians promisewould lower their property tax burden: a 19 percent increase in the effective income tax rate. Itwas the third-largest hike in the nation. Therewas no relief.

And itwasn’t just homeowners who got whacked. Renterswere not immune to the effects of severe tax hikes. Fromthe prebubble to post-recession period, rent as a share of home values climbed faster in Illinois than all but two other states. Rents in Illinois rose by nearly 25 percent, but home valueswere stagnant, meaning renters started getting much less house for their money compared with other states.

The silver lining here is that making Illinois amore attractive state in which to plant roots is entirely within lawmakers’ control. Ending the tax hike habit would make a big difference. Two changes are key:

First, a state spending cap tied to economic growthwould end runaway spending, which has grown 25 percent faster than taxpayers’ incomes over the past decade. Second, to ensure budget stability in the long term, Illinois lawmakers must deal with the pension monster. Aconstitutional amendment to protect the pension benefits government employees have already earned, but allowing for reforms to future, not-yetearned benefits is a compromise that defends retirees, taxpayers and Illinoisans reliant on government aid.

“It’s a win-win for us,” Adan Villafranca said of his Indiana move.

It’s about time people planting roots in Illinois felt the same.

Austin Berg, a writer for the Illinois Policy Institute, wrote this column for the IllinoisNewsNetwork.